2021 was a year characterised by transformation due to the continuing Covid-19 pandemic, it brought forward new ideas and ways of working to the wealth management industry. It was a year that came with a host of challenges including soaring inflation rates and rising prices of both goods and services. Conversely, it was a fruitful year for some, as we saw the equity market reach new highs, bringing in large numbers of first-time investors, and so new players looking to serve them. As asset managers and wealth investors shake off the glitter from the holiday season and look towards the year ahead, what trends, challenges and opportunities does 2022 have in store for the wealth management industry?
1. Rise in private equity investing
Investing in private equity has typically been for large institutional investors, but recently PE firms have been marketing themselves to attract and become more accessible to smaller advisories. This gives medium and smaller wealth managers the opportunity to invest in private markets which have been outperforming their public counterparts. As more investors turn to PE investments, the demand for alternative assets has increased, with reports predicting PE will reach record numbers in the coming year.
2. Inflation
The rapid bounce back following the global and national lockdowns due to the pandemic has led to staggeringly high levels of inflation and rapidly rising prices around the world. According to the US Bureau of Labor Statistics, the US consumer price index rose by 6.8% between November 2020 and 2021, the highest 12-month increase since 1982. Similarly, the UK consumer price index rose by 5.1%, the highest increase in a decade. Limited supplies of commodities, such as energy, coupled with high demand will continue to exacerbate rising prices. This trend is expected to continue well into 2022 as inflation rates are expected to get worse before they get better and will present a significant challenge for wealth and asset managers throughout the year.
3. Cryptocurrency
Cryptocurrency saw a huge rise in popularity over the lockdown periods of 2020 and 2021 as investing strategies evolved. The increasing popularity of cryptocurrencies can additionally be attributed to rising inflation as the digital asset is not damaged by the decreasing value of cash. As the demand continues to rise it is expected that leading banks will begin to offer cryptocurrencies in order to compete with upstarts. Subsequently, more clients are set to add cryptocurrencies to their portfolios this year.
4. Continuing fee compression
Fees were already under pressure when the Covid-19 pandemic hit. Since then, the increased market volatility has taken an even greater toll on fees, increasing the downward pressure, and hitting new record lows. This has led to larger corporations cutting their fees, subsequently increasing the pressure on smaller asset and wealth managers, who are unable survive fee cuts. 2022 will continue to be characterised by this increase in competition and fee compression, therefore, it is vital for asset and wealth managers focus on how to respond to these challenges and differentiate themselves in the market, instead of engaging in a race to the bottom.
5. Increased focus on sustainability ESG
In the wake of COP26, sustainability and environmental, social and governance (ESG) has been propelled further to the top of organisation’s agendas and will continue to dominate the wealth management industry this year. With new sustainability-related regulatory measures set to be developed and implemented over the coming years, asset and wealth managers will need to be more adaptable in order to facilitate asset allocation decisions. However, it is imperative for the industry to steer clear of greenwashing claims and correctly label green and sustainable products and services. While meeting regulatory requirements is crucial, it is important for firms to go above and beyond this by demonstrating their support of climate action both internally and externally. Additionally, asset and wealth managers will play an integral role in driving and supporting clients, stakeholders and supply chains through the transition to a greener and more sustainable economy.
6. Digital transformation
The wealth management industry has been lagging behind the digitisation of the global economy for years, in part held back by traditional practices of developing personal relationships with clients and multiple manual processes. However, with the development of digital challengers and ‘Robo advisors’, which have given individual investors access to global stock markets without the management fees charged by brokers and asset managers, it has become vital for firms to become more digitised in order to remain relevant and appeal to new and younger demographics. Therefore, the digital transformation of the wealth management firms will be essential to gain a competitive edge, and deliver the service customers are coming to expect as standard.
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